Saturday, February 27, 2010

The $1,261 Question (A Thought Process)

Capital Invested (includes costs but excludes dividends & gains from sale) : $13,169
Dividends For Calender Year 09 : $299.54
Yield : approx 2.5%

Current Market Value of Portfolio (includes re-investments from disposals, based on last done) : $23,665
Returns On Invested Capital (ROIC) : 79.7%
Year-to-date ROIC : 3.48%

Proposed Dividends: $425
Net Proposed Injection :  $836

Total Cash Holding : $1,261
% of Capital Invested : 9.6%
% of Portfolio : 5.33%

The $1,261 question here refers to what should i do with this amount considering that it is "neither here nor there".  i might require the money to subscribe in possible cash calls. but by holding it as cash, i might lose out in term of the broader market recovery, which for the fact is still ongoing, despite the fed rate hike. These are real problems faced by small time investors who don't have alot of cash in hand or are just working.

There are a few course of actions namely, buy a new stock, buy more of an existing stock or simply hold as cash in case of fund raising.
Buying A NewStock
considering that at last count i have 11 stocks at the moment, by adding one more stock, i will be just about diversified. but the downside is that considering that most of them are small holdings, when i have to liquidate the whole portfolio, i will see a substantial drag in terms of overall performance. 12 x $30 worth of transaction costs is a real bummer considering that the base capital is so small.

There are of course stocks that I am tempted to buy such as Del Monte Pacific and other food makers.

Buying An Existing Stock
This will make transaction cost per stock 33% cheaper since there is only a one-off exit cost. This is generally a good idea, especially averaging up. The longer you follow a stock or hold it, it rationally means that it is a good stock and putting more money in it is safer.

Do not however average down. Factoring for flawed analytical abilities, if you average up and the stock goes down, you lose profits.

Average down and the stock goes down, you lose even more money. The human tendency is that once a stock loses money for you, you will hold it till it is worthless because you do not want to realise a loss, since it is more painful than a gain is enjoyable.

Holding On To Cash For Emergencies
Well. Worse-to-worse, you can roll over the cash for next year even though that means losing opportunities. It is always good to have a decent cash position so that you do not have to sell the good stocks.

I will take a look at the buying opportunities that exist within my portfolio as well as those on my watch list. The possibility of fund raising is low. I fear stock consolidation more than anything. Of my existing holdings, Stratech looks most likely to do something unexpected. ActionAsia might also surprise, but it has already issued new shares pursuant to its TDRs, which it has yet announce a completion date.

If i were to buy an existing, it would be either FJ Benjamin or Asiatic. The former has got a good range of products and the IRs are its boon. Asiatic has alot of growth potential but the energy story is very risky. Profit taking might be the order if i want more money in the long run.

No comments:

Post a Comment